Weekly Market Assessment
Is the Treasury Department going all in? This was a quote from the Treasury Department on Thursday, "A default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse," Wow! A little over the top? The markets are forward looking entities, that's why markets are considered discounting mechanisms. Looking over the Treasury's statement, you would expect the market to be in turmoil with money fleeing the bond market, if the debt ceiling wasn't going to be raised. In fact, money actually flowed into the 10 Year Treasury Bond (2.61%) on this report, which goes against any fear of a default. Is the market calling the Treasury's bluff? Or is this just another tactic to bring the two parties together to resolve this issue? If the market is a discounting mechanism, then the signs are clear that like before, this event is already baked into the market.
For the 6th time this year we have hit the 50 day moving average and bounced off it. As mentioned last week, the duration has become shorter between each attempt. This of course becomes concerning as buyers are constantly on the attack to support this line. I'm lead to either trust that the market is right and factored in this event or heed the Treasury's warnings and leave the table.
Through the Looking Glass: My Perspective on Stocks Reactions to Market Conditions
Debt ceiling negotiations, GDP and CPI:
Debt ceiling -talks continue to influence the market and will present opportunities in financial stocks BAC, WFC, JPM which will be heavily effected by headline risk and comments coming out of Congress.
GDP- gross domestic product- we get this number on Monday and if it comes in below expectations ill be looking towards stocks in the consumer discretionary sector that should move down on a negative report, LL($107.05), PIR(19.93)
CPI- Consumer Price index- Looking at stocks that are commodity based, the dollar remains in a down trend which should show an increase in prices. Ill be looking for a move up in FCX($33.78), NUE(48.78)
Debt ceiling negotiations, Jobs report and PMI: Last week I mentioned how financials would be adversely affected by negotiations in Congress. Financials sold off to find support at averages and money continued to flow into the bond market seeking safety which brought down the yield on the 10 year. No jobs report due to Government shut down and PMI came in above 50.
From the Trading Floor to the Option Pit: A quick look at what's on the trading desk
E-Mini S&P 500 futures-no trades
Apple (AAPL)- Sold a weekly Vertical "CALL" spread at $480/475 to collect premium. AAPL continues to trade in a range and this trade was based on the 50 day moving average support found at $480. Weekly gain of 11%
RE/MAX Holdings (RMAX)- Through its subsidiaries, operates as a real estate broker. Picked this up for a long term hold on its IPO day which was Wednesday at $26.09. Currently sits at $32. This may turn into a short term trade.
Tesla (TLSA)- Sold a Vertical "CALL" spread at $195/200 to collect the entire premium for a 39% weekly gain on my options.
JCPenney (JCP)- Continues to drop and wiped out my $9 "CALL" option. This now trades at all time lows and I will be looking to take a common stock position in this at ~$7.95. Crazy to think this was once a $40 stock. Dilution seems to be setting in and any good news over the holidays or new activist investor or new large stake holder will pop up this stock.